Fundamental Analysis for DUTCH LADY MILK INDUSTRIES BHD

Date of Analysis:
Company Name:
Stock Code (Bursa):
Stock Code (Bloomberg):

6-Jun-11
DUTCH LADY MILK INDUSTRIES BHD
DLADY
SIME:MK

Stock Code (Reuters):

Price as of Analysis:
Stock Grade

DLM:MK
18.22

Board:
FBMKLCI:
Sector:

Main
N
CONSUMER
PRODUCTS
Industrial PE:
20.7
Rolling EPS:
1.12

Dividend Cash Cows

Financial Statements:
Year over year, Dutch Lady Milk Industries Bhd has seen revenues remain relatively flat (691.8M to 710.6M),
though the company was able to grow net income from 60.4M to 63.9M. A reduction in the percentage of
sales devoted to cost of goods sold from 66.85% to 63.04% was a key component in the bottom line growth in
the face of flat revenues.

1 - History of Consistently Increasing Earnings, Sales & Cash Flow

1.1. Income Statement -> Sales Revenue & Net Income After
Tax increasing in the past 4 years.
1.2. Cash Flows -> Net Cash from Operations increasing in the
past 4 years.
1.3. Growing/consistent revenue in EPS, revenue and net profit
in the last 4 quarters.
1.4. The current quarter's EPS is up more than 15% from the
same quarter the year before.

2 - Sustainable Competitive Advantage

2.1. Strong brand, monopoly or barriers to entry
2.2. Gross Profit Margin (> 40%) & Net Profit Margin (> 10%)
high & consistent
2.3. Consistently high ROE > 15%

3 - Strong Future Growth Drivers

3.1. Able to deliver double-digit growth in next 3-5 years
3.2. LT Growth Rate is positive

4 - Conservative Debt
4.1. Long term debt < 4 times Net Profit
4.2. Debt/Equity Ratio < 1
4.3. Current Ratio > 1

5 - Positive Accounting KPI & Ratios

5.1. DUE-D Basic > 70%

5.2. FQA Score > 60%

5.3. SWC Score > 7% p.a.

5.4. ROIC > 15%

6 - Healthy Cash Flow

6.1. Working capital increase slower than sales
6.2. Short & declining "Cash Conversion Cycle"
6.3. Free Cash Flow / Sales > 5%

7 - Management is Holding/Buying Stock

7.1. Is key management holding/buying large proportion of
stock.

8 - Risks are Managed

8.1. Understand the risks of the company and how it is
managed.

9 - Price is below Intrinsic Value

9.1. Price is below Intrinsic Value (Bonus: Price can double
within 3 years)

10 - Stock Price Breaks out of Consolidation/Dip on an Uptrend

10.1. Stock price breaks out of consolidation/dip on an
uptrend and above 20 and 50 moving averages on monthly
chart.

1 - History of Consistently Increasing Earnings, Sales & Cash Flow

1.1. Income Statement -> Sales Revenue & Net Income After Tax increasing in the past 4 years.
RM ('000)
TOTAL REVENUES
NET INCOME

2006
513,650
43,065

2007
609,232
47,255

2008
711,567
42,647

2009
691,847
60,400

1.08452381 1.626785714

3.253571429

2010
710,588
63,887

800,000
700,000
600,000
500,000

TOTAL REVENUES

400,000

NET INCOME

300,000
200,000
100,000
0
2006

2007

2008

2009

2010

1.2. Cash Flows -> Net Cash from Operations increasing in the past 4 years.
RM ('000)
NET CASH FROM
OPERATIONS

2006
54,122

2007
45,114

2008
29,897

2009
89,377

2010
98,389

120,000
100,000
80,000
60,000

NET CASH FROM OPERATIONS

40,000
20,000
0
2006

2007

2008

2009

2010

1.3. Growing/consistent revenue in EPS, revenue and net profit in the last 4 quarters.
250000
200000
150000

173111

188929

196643

186715
161833

Turnover Trend

100000

Net Profit Trend

50000
0
3/1/2010

6/1/2010

9/1/2010

12/1/2010

3/1/2011

EPS Trend
50
40

44.28

30
20

32.52

29.56
20.82

10

16.93

0
Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Quarter

1.4. The current quarter's EPS is up more than 15% from the same quarter the year before.
EPS Growth:

36%

2 - Sustainable Competitive Advantage

2.1. Strong brand, monopoly or barriers to entry
1. Does it have a monopoly situation ?
2. Does it have a strong leading brand?
3. Does it have a high barriers to entry?
4. Does it have market leadership?

NO
Strong
High
Strong

2.2. Gross Profit Margin (> 40%) & Net Profit Margin (> 10%) high & consistent

Gross Profit:

Sales Revenue:

262,600
63,887

Profit After Tax:

Net Profit Margin:

2.3. Consistently high ROE > 15%

ROE
40
35
30
25
20
15
10
5
0
2001

2002

2003

2004

2005

2006

Minority Interest:

37%

Gross Profit Margin:

710,588

2007

2008

2009

2010

9%

3 - Strong Future Growth Drivers

3.1. Able to deliver double-digit growth in next 3-5 years
Summary of analyst reports on company and industry projections:
0

Summary of CEO message on future prospects:

3.2. LT Growth Rate is positive

LT Growth Rate:

20.61

4 - Conservative Debt
4.1. Long term debt < 4 times Net Profit
0

Long Term Debt:

Long Term Debt < 4 times Current Net Earnings (After Tax):
4.2. Debt/Equity Ratio < 1

Debt/Equity Ratio:

0.56

4.3. Current Ratio > 1

Current Ratio (MRQ):

2.20

0.00

5 - Positive Accounting KPI & Ratios

5.1. DUE-D Basic > 70%
DUE-D Basic:

100%

5.2. FQA Score > 60%

FQA Score:

100%

5.3. SWC Score > 7% p.a.

SWC Score:

8.87%

5.4. ROIC > 15%

EBIT (1-Tax
rate%)
Total Equity
Short Term Debt

2007
65,026

2008
58,154

2009
82,031

2010
89,221

127,300
16,400

161,600
0

180,000
0

197,500
0

Long Term Debt

Cash & Equiv
ROIC

0
17,267
51.43%

0
23,792
42.20%

0
41,732
59.33%

0
85,657
79.77%

90.00%
80.00%
70.00%
60.00%
50.00%
ROIC

40.00%
30.00%
20.00%
10.00%
0.00%
2007

2008

2009

2010

6 - Healthy Cash Flow

6.1. Working capital increase slower than sales
2007
609,232

Sales Revenue
Sales Growth YOY
Inventory
Accounts Receivable
Accounts Payable
Working Capital
Working Capital Growth YOY
Inventory Days
Days Receivable
Days Payable
Cash Conversion Cycle

117,900
99,191
143,748
73,343
70.64
59.43
86.12
43.94

2008
711,567
17%
74,900
125,282
122,731
77,451
5.60%
38.42
1.08
62.96
-23.45

2009
691,847
-3%
57,600
94,500
92,188
59,912
-22.65%
30.39
1.63
48.64
-16.62

2010
710,588
3%
72,700
75,865
99,986
48,579
-18.92%
37.34
3.25
51.36
-10.76

20%
15%
10%
5%
Sales Growth YOY

0%
-5%

2007

2008

2009

Working Capital Growth YOY

-10%
-15%
-20%
-25%

6.2. Short & declining "Cash Conversion Cycle"

50.00
40.00
30.00
20.00
10.00

Cash Conversion Cycle

0.00
-10.00

2007

2008

2009

-20.00
-30.00

6.3. Free Cash Flow / Sales > 5%

Free Cash Flow/Sales:

12.71%

2010

7 - Management is Holding/Buying Stock

7.1. Is key management holding/buying large proportion of stock.
Shareholding Analysis:
FRINT BEHEER IV BV & SKIM AMANAH SAHAM BUMIPUTERA are the major shareholders

8 - Risks are Managed

8.1. Understand the risks of the company and how it is managed.
Risk Management:
0

9 - Price is below Intrinsic Value

9.1. Price is below Intrinsic Value (Bonus: Price can double within 3 years)
Valuation Method
Discounted Cash
Flow

Growth Rate
5Y - 20.61 3Y - 32.29
19.37
24.00

Remark

15.63/3
15.63/2
Dividend Discounted
17.00
15.00
PE
20.8
23.30
0.78

PE Model
PEG
Estimated IV:
Discount from IV:

From
From

Discount from IV is not more than 20%

Based on PEG, it is currently undervalued.

17.08
19.13
0.95
19 To
4.1% To

14.7 Sector Avg. PE

16.46
23.18
1.11
0.79
23
20.8%

10 - Stock Price Breaks out of Consolidation/Dip on an Uptrend

10.1. Stock price breaks out of consolidation/dip on an uptrend and above 20 and 50 moving averages on monthly char